Answer ... The introduction of the Regulatory Sandbox is a welcome development in the fintech landscape. It is expected that a growing number of fintech companies will apply for admission to the Regulatory Sandbox. A press release issued by the Capital Markets Authority (CMA) announced that as of 31 July 2019, three fintech companies had been admitted to the Regulatory Sandbox. One of these is testing its cloud-based data analytics platform, designed for use by investors, fund managers, custodian banks, actuaries, pension administrators and regulators; another is testing an internet-based crowdfunding platform through which investors can provide loan facilities structured as loan notes (debentures) for small and medium-sized enterprises. Upon exiting the sandbox, participants will be considered for:

• the grant of an existing applicable licence or approval to operate in Kenya, subject to compliance with relevant legal and regulatory requirements;
• the grant of permission to operate in Kenya, subject to compliance with the specified terms of a letter of no objection in respect of a business falling outside existing regulatory provisions; or
• a denial of permission to operate in Kenya, in light of regulatory concerns identified during the testing phase.

The sandbox is also expected to enhance the CMA’s understanding of emerging technologies, support the adoption of an evidence-based approach to regulation, and deepen and broaden Kenya’s capital markets. It is highly likely that the CMA may draft new regulations, guidelines or notices pursuant to Sections 12 and 12A of the Capital Markets Act.

Another notable development is the significant increase in self-regulatory associations. Regulation always plays catch-up with innovation. In Kenya, innovators have realised that ceasing to innovate is not an option; so self-regulation thus seems like the most viable option. This is a way to ensure that when laws are finally enacted, they do not prove overly harsh, and to present a united front in lobbying for favourable laws. Examples include the Payment Association of Kenya and the Digital Lenders Association of Kenya.

Prevailing trends in the fintech landscape include regtech, insuretech and wealth management. Technology-led decisions in the betting and gaming industry are also expected.

While initially it appeared that fintech companies would replace banks, we are now seeing collaboration between banks and fintech companies. Banks are also setting up their own fintech outfits and incorporating them into their processes. For example, local bank launched a WhatsApp banking solution to offer customised mobile banking services to customers, including virtual account opening, funds transfer, loans, bill payments and goods purchases.